''Generic drug companies have become much more sophisticated in terms of their ability to successfully challenge patents, which means that a larger proportion of products are coming off patent,'' he said. ''Also, we are revisiting government pricing policy. Finally, pipeline productivity has been pretty lackluster.''

The news from Merck was a catalyst for heavy selling in the stock market. Merck, a component of the Dow Jones industrial average, was the biggest loser of the 30 blue chips that make up the index.

The company said its net income from continuing operations in the quarter totaled $1.86 billion, or 82 cents a share, compared with $1.76 billion, or 83 cents a share, a year earlier. Analysts had expected earnings of 85 cents a share. Revenue rose 6 percent, to $5.76 billion.

The figures excluded results from Medco Health Solutions, the prescription drug benefit business that Merck spun off to shareholders on Aug. 19.

Investors, many of whom have recently avoided Merck and other big drug makers, sent Merck's stock down 6.5 percent, to $45.72, yesterday, well below its 52-week high around $60 in mid-June.

Due in large part to a decline of 11.22 points yesterday, the pharmaceuticals index of the Standard & Poor's 500 is now down just over 3 percent this year. That badly lags the broader S.& P. 500 index, which even with yesterday's general market drop is still up more than 17 percent this year. The drug index fell 22 percent last year and 16 percent in 2001.

Merck, once seen as a growth company among the drug makers, has fallen on harder times because of a lack of new products flowing from its laboratories. And growth from the big drugs it still has under patent is slowing.

Collectively, sales of the company's five largest drugs -- a list that includes its No. 1 product, Zocor, for high cholesterol -- rose just 9 percent in the quarter. But the sales of Zocor, which lost its patent protection in Europe this year, were down 2 percent, to $1.4 billion. And revenue from its second-biggest drug, Vioxx, fell 32 percent.

''With Medco carved out, they have exposed what their core business looks like,'' Mr. Moskowitz said.

Merck, which tends to be reticent in discussing its product pipeline, has scheduled an annual meeting with analysts at its headquarters in Whitehouse Station, N. J., on Dec. 9.

''That will be a critical meeting,'' Mr. Moskowitz said. ''If they don't talk much about what is in the pipeline, that won't be good.''

In large measure, the job cuts announced yesterday are being made to counter the slower sales. Merck said it planned to cut 3,200 full-time positions and 1,200 contract or temporary jobs. It said the cuts were expected to generate $250 million to $300 million in annual savings.

Merck said it would take a restructuring charge of $140 million to $200 million in the fourth quarter.

Currently, Merck has just over 63,000 full-time employees, approximately 8,300 of whom work in New Jersey. Tony Plohoros, a Merck spokesman, declined to say how many New Jersey jobs would be eliminated, but said the ''best guess'' was that 5 percent of the total cuts would be there.

Raymond V. Gilmartin, the chairman and chief executive, said in a statement: ''In an environment driven by increasing competition, cost-containment pressures and greater customer demand for value, we have examined every aspect of our business, at every level, to identify ways to more effectively address these challenges. That process is ongoing, as we continue to identify opportunities to fundamentally change how we operate our business.''

By contrast, Pfizer has an attractive portfolio of new drugs in its pipeline. But because of costs related to its purchase of Pharmacia, the company said, its third-quarter profit fell more than 4 percent, to $2.24 billion, or 29 cents a share, from $2.35 billion, or 38 cents a share, a year earlier. Revenue jumped 56 percent, to $12.5 billion, in large part because of strong demand for Celebrex, the painkiller developed by Pharmacia.

Pfizer's earnings were 3 cents a share better than Wall Street analysts had forecast. But its stock fell 88 cents yesterday, to $30.62, partly as a result of the decline in Merck shares.

Analysts said they were disappointed that even with the strong increase in third-quarter revenue, Pfizer left its outlook for the fourth quarter and the full year unchanged.

Wyeth, whose products include Advil, posted a third-quarter loss as it set aside more money to pay for any penalties resulting from lawsuits over the fen-phen diet drug combination. Wyeth said it lost $426.4 million, or 32 cents a share, in contrast to net income of $1.4 billion, or $1.05 a share, a year earlier. Revenue rose 13 percent, to $4.08 billion.

Wyeth's shares dropped $2.50, or 5.5 percent, to $43.30.

Eli Lilly reported after the stock market closed yesterday that its earnings rose 4 percent in the third quarter, to $714 million, or 66 cents a share. The results were in line with consensus Wall Street estimates.

Still, the shares fell almost 3 percent, to $60.78, before the report came out, and were unchanged in after-hours trading.

Photo: Merck, based in Whitehouse Station, N.J., has been criticized for its drug pipeline. It plans an important meeting with analysts on Dec. 9. (Photo by Bloomberg News)(pg. C14)